21st Jun 2005 07:00
Meggitt PLC21 June 2005 21 June 2005 MEGGITT PLC IFRS RESTATEMENT Meggitt PLC today publishes an analysis of the impact of International FinancialReporting Standards (IFRS) on its results for 2004, together with a detailedreconciliation from UK Generally Accepted Accounting Practice (UK GAAP) to IFRS. In summary: • Underlying profit before taxation(1) for the year ended 31 December 2004 has increased by £0.8m from £89.5m to £90.3m. • Statutory profit before tax for the year ended 31 December 2004 increased from £56.6m under UK GAAP to £70.6m under IFRS. • Basic earnings per share for the year ended 31 December 2004 increased from 9.1p to 13.8p. • Net assets at 31 December 2004 reduced from £465.0m under UK GAAP to £462.4m under IFRS. • There is no impact on underlying cash flow. • Covenants in respect of borrowings have been written on the basis of UK GAAP. They are currently, therefore, unaffected by the transition to IFRS. The attached information is unaudited and subject to change. It is alsoavailable on the Company's web site. Stephen Young, Group Finance Director, will be available all day today to answerquestions on this IFRS restatement. He can be contacted on 01202 847847. (1) Underlying profit before taxation is statutory profit before taxationadjusted to exclude amortisation of IFRS 3 intangibles, exceptional operatingcosts and IFRS3 inventory revaluations and, from 2005, also before the markingto market of forward foreign currency contracts. Restatement of financial information for 2004 under International Financial Reporting Standards (IFRS) Contents 1. Introduction 2. Basis of Preparation 3. Review of the main changes arising from the transition from UK GAAP to IFRS 4. Detailed reconciliation of profit for the six months to 30 June and the year to 31 December 2004 5. Detailed reconciliation of equity at 1 January , 30 June and 31 December 2004 6. Impact of IFRS on other financial data 1. Introduction Historically Meggitt PLC has prepared its consolidated financial statements inaccordance with UK Generally Accepted Accounting Practice (UK GAAP). As aresult of changes in EU legislation Meggitt, along with all other EU listedgroups, will need in future to prepare consolidated financial statements inaccordance with International Financial Reporting Standards (IFRS). This change applies to all accounting periods beginning on or after 1 January2005. The Group's first Interim Report under IFRS will therefore be for the sixmonths ended 30 June 2005 and its first Annual Report under IFRS will be for theyear ended 31 December 2005. Prior period comparatives will need to be restatedto comply with IFRS. The purpose of this document is to explain how the adoption of IFRS will affectthe Group's financial performance and financial position. The financialinformation presented in this document is unaudited and subject to change. Summary of the effects of IFRS The main impacts for the Group are: • Goodwill is no longer amortised. • On acquisition certain intangibles such as order backlog and customer relationships have to be identified separately from goodwill and amortised over their useful lives. • On acquisitions it is also necessary to "step up" the carrying value of inventory to fair value and charge the "step up" to the Income statement as the inventory is consumed. • The Group's forward currency hedging position, typically 12 months' cover, will be marked to market at the end of each period and recorded in the Group balance sheet (previously disclosed in a note). This will only apply from 1 January 2005. • Pension deficits are included in the consolidated Group balance sheet (previously disclosed in a note). The recognition of this deficit also results in a reduced pension charge in the income statement. • Dividends are recorded as a liability only when approved (previously when proposed). The Group is also impacted by the accounting for share based payments, vacationaccruals and deferred tax together with the requirement for a number ofreclassifications. Impact on underlying profit before taxation Underlying profit before taxation under UK GAAP was historically reported by theGroup as profit before tax, exceptional items and goodwill amortisation. UnderIFRS there is no goodwill amortisation, however, the Group excludes amortisationof the new IFRS 3 intangibles and the impact of IFRS 3 inventory revaluationsand, from 2005, the marking to market of forward foreign currency contracts. Impact £'m 6 mths 12 mths June 2004 Dec 2004 Per UK GAAP 39.7 (*) 89.5 Pensions 0.8 1.5Share based payments (0.3) (0.7)Vacation accrual (0.5) -Net impact 0.0 0.8 Per IFRS 39.7 90.3 (*) Adjusted for the impact of the Group's new policy onResearch & development adopted in the second half of 2004 Impact on statutory profit before tax Impact £'m 6 mths 12 mths June 2004 Dec 2004 Per UK GAAP 30.0 (*) 56.6 Pensions 0.8 1.5Share based payments (0.3) (0.7)Vacation accrual (0.5) -Goodwill amortisation 9.7 25.0Amortisation of other IFRS3 intangibles (A) - (3.3)Step up of inventory fair values at acquisition (B) - (8.5)Net impact 9.7 14.0 Per IFRS 39.7 70.6 (*) Adjusted for the impact of the Group's new policy onResearch & development adopted in the second half of 2004 A. Relates to Dunlop acquisition on 24th August 2004. The annualised charge in respect of the acquisition would be £9.8 million. B. Impact on acquisition of Dunlop of stepping up inventory to fair value. There is no step up of inventory carried into 2005 and therefore no impact on profit for 2005. Impact on net assets Impact £'m 30 June 2004 31 Dec 2004 Per UK GAAP 280.0 (*) 465.0 Pensions (48.3) (41.3) Share based payments 0.7 0.9 Vacation accrual (0.4) - Goodwill amortisation 9.7 23.6Amortisation of other IFRS3 intangibles - (2.3)Step up of inventory fair values at acquisition - (6.0)Proposed dividends 9.4 20.6Other deferred tax (**) 1.0 1.9Net impact (27.9) (2.6) Per IFRS 252.1 462.4 (*) Adjusted for the impact of the Group's new policy onResearch & development adopted in the second half of 2004 (**) All figures above are stated net of tax where applicable 2. Basis of preparation The unaudited financial information presented in this document has been preparedon the basis of all International Financial Reporting Standards (IFRS) andInternational Financial Reporting Interpretations Committee (IFRIC)interpretations that are expected to be applicable for the Group's 2005reporting. These are subject to ongoing review and possible amendment. Furtherstandards and/or interpretations may be issued that could apply to 2005. If anysuch amendments, new standards or new interpretations are issued these mayrequire the financial information provided in this document to be changed. The Group will also continue to review its accounting policies in the light ofemerging industry consensus on the practical application of IFRS. This couldalso mean that the financial information provided in this document may requiremodification until the first complete set of audited IFRS financial statementsare completed for the year ended 31 December 2005. First time adoption of IFRS When a company first adopts IFRS it is generally required that prior yearcomparative data is restated as though IFRS had always been applicable. IFRS 1,which covers the initial transition to IFRS, does however, allow a company totake advantage of a number of exemptions from restating historical data incertain instances. These exemptions which were designed to simplify thetransition process have been described below to the extent that the Group hasapplied them. a. IFRS 3 Business combinations The Group has chosen to apply IFRS 3 prospectively. Accordingly acquisitionsprior to 31 March 2004 have not been restated for the effects of IFRS 3. b. IFRS 2 Share based payment IFRS 2 applies to all options granted after 7 November 2002 and which have notfully vested as at 1 January 2005. Award of options prior to that date are onlyaccounted for under IFRS 2 if the fair value of those options has previouslybeen publically disclosed. As the Group has not provided such informationpublically in the past, IFRS2 will not be applied to these earlier awards. c. IAS 39 - Financial Instruments: Recognition and Measurement IAS 32 - Financial Instruments: Disclosure and Presentation The Group has chosen to apply IAS 39 from 1 January 2005 as permitted by thetransitional rules. Accordingly the 2004 financial information provided in thisdocument treats financial instruments in accordance with UK GAAP. On 1 January2005 when IAS 39 and IAS 32 are adopted the Group will recognise the cumulativeeffect of the difference between UK GAAP and IFRS as an opening balance sheetadjustment. d. IAS 21 - The effect of changes in foreign exchange rates IAS 21 requires the cumulative foreign exchange differences that arise on theretranslation of overseas subsidiaries to be separately disclosed withinshareholder's equity and, in the event that an overseas subsidiary is disposedof, for the cumulative foreign exchange differences to be recycled through theincome statement as part of the profit or loss on disposal. The group haselected to take advantage of the option to apply IAS 21 only to exchangedifferences arising after 1 January 2004. e. IAS 19 - Employee benefits Under IAS 19 the Group has the option of accounting for actuarial gains andlosses arising on its pension schemes immediately they arise through theStatement of Recognised Income and Expense or to use a "corridor approach" whicheffectively delays recognition. The Group has elected to account for actuarialgains immediately which is consistent with the requirements of the UK standardon pensions, FRS 17. f. Presentation of financial Information The financial information provided in this document has been presented in amanner consistent with the requirements of IFRS and thus the format of primaryschedules such as the income statement and the balance sheet differ from thoseunder UK GAAP. Generally the presentational rules of IFRS are less prescriptivethan those under UK GAAP. The Group has therefore endeavoured to interpret theIFRS requirements in a manner that provides users with clear and conciseinformation. These formats may however require modification as industryconsensus develops. g. Fixed assets The Group has taken advantage of the IFRS1 exemption to incorporatethe accounting values of fixed assets at 1 January 2004 as deemed fair value. 3. Review of the main changes arising from the transition from UK GAAP to IFRS The following explains the major adjustments arising from the transition toIFRS. It does not attempt to explain all adjustments, only those having asignificant affect on the Group's financial performance or financial position. It should be noted that the Group's R&D policy was revised in 2004 following theacquisition of the Dunlop business. The adopted policy is compliant with IFRSand hence there is no restatement to discuss. a. Employee benefits (IAS 19) Requirements of IFRS Under UK GAAP pensions were accounted for in accordance with SSAP 24. The rulesof IAS 19 are very similar to those of FRS 17, the impact of which was disclosedin the Group's 2004 UK GAAP financial statements. There are two maindifferences between the requirements of SSAP 24 and those of IAS 19. i. Under IAS 19 the pension fund surplus/deficit is shown on the balance sheet of the sponsoring company; under SSAP 24 such balances were generally "off balance sheet". ii. The income statement under SSAP 24 reflected the recognition of any surplus/deficit in the scheme over a period of time resulting in a credit or charge respectively. Under IAS 19, as the pension scheme is on the balance sheet, no such credit or charge arises. In addition IAS 19 requires provision to be made for vacation earned by anemployee but not taken. Impact for Group The main impact of adopting IAS 19 on the balance sheet is that the Grouprecognises the pension deficits at the balance sheet date and excludes any SSAP24 balances. A full deferred tax asset is recognised on the deficits at eachbalance sheet date. The vacation pay provision is only a factor at June because all vacation must betaken by the end of December. The main impact of adopting IAS 19 on the income statement is that the Group nolonger requires an operating profit charge in respect of the pension deficits.At the same time the expected returns on the pension scheme assets and theincrease in pension liabilities from unwinding the discount factor are reportedas new items within net finance costs. Once again, the vacation pay accrual is only a factor in the first half. Impact £'m June 2004 Dec 2004 Change in service cost 0.9 1.7Change in vacation accrual (0.5) -Net finance costs (0.1) (0.2)Impact on PBT 0.3 1.5 Tax (0.2) (0.5) Impact on Profit for year 0.1 1.0 Deficit at 1 January 2004 (*) (49.7) (49.7)Foreign exchange (*) 0.1 0.4Actuarial gains/(losses) (*) 0.8 7.0 Total impact on retained earnings and net assets (48.7) (41.3) (*) = Stated net of tax b. Dividends (IAS 10) Requirements of IFRS Under UK GAAP proposed dividends were shown as a liability at the balance sheetdate if they related to a period prior to that date. A liability was recognisedeven where the dividends in question were not approved until after the balancesheet date. Under IAS 10 the declaration of a dividend is only recognised as aliability at the date it is approved. Additionally dividends no longer appearon the face of the income statement but are instead shown within the Statementof Changes in Shareholder Equity. Impact for Group The impact is to increase net assets at 30 June 2004 and 31 December 2004 due tothe elimination of the proposed interim and final 2004 dividends respectively. Impact £'m June 2004 Dec 2004 Impact on PBT - - Tax - - Remove dividends from P&L & charge direct to equity 9.4 30.0 Impact on Profit for year 9.4 30.0 Remove dividends from P&L & charge direct to equity (9.4) (30.0)Account for interim 2004 dividend when declared 9.4 -Account for final 2004 dividend when declared - 20.6 Total impact on retained earnings and net assets 9.4 20.6 c. Share based payment (IFRS 2) Requirements of IFRS IFRS 2 requires an expense to be recorded in the income statement for all formsof share based payment. The expense is based on the fair value of the shareaward at the date the award is made. The expense is recorded over the periodfor which the employee provides services in respect of the share scheme. Impact for Group The main impact for the Group is that Executive option awards are now recordedas an expense in the income statement whereas under UK GAAP there was no suchcharge. The fair value of the options has been calculated by the Group usingthe Black Scholes option pricing model. The expense is recognised over theperiod from the date of award to the date of vesting. As referred to in 2(b) above IFRS 2 has only been applied to options awardedafter 7 November 2002. Options awarded prior to this date but which have notvested at 31 December 2004 do not result in any expense for that year. Thecharge recorded under IFRS 2 for the year ended 31 December 2004 is thus notreflective of the full charge that will be recorded once all options that havenot vested are recognised as an expense. Impact £'m June 2004 Dec 2004 Fair value of share awards (0.3) (0.7) Impact on PBT (0.3) (0.7) Tax 0.1 0.2 Impact on Profit for year (0.2) (0.5) Fair value of share awards credited to equity 0.2 0.6Tax credited against equity 0.2 0.3Prior year impact 0.5 0.5 Total impact on retained earnings and net assets 0.7 0.9 The Group estimates that had IFRS 2 been applied to all awards and not justthose after 7 November 2002 the adverse impact on PBT for the year ended 31December 2004 would have increased from £0.7m to £1.3m. d. Business combinations - IFRS 3 Requirements of IFRS i. Under IFRS 3 goodwill is no longer amortised but is instead subjectto annual impairment testing. ii. IFRS 3 requires intangible assets to be identified separately fromgoodwill provided they meet the IFRS definition of an intangible asset andprovided their fair value can be measured reliably. IFRS gives examples ofintangible assets that would typically be identified separately from goodwillincluding order backlogs, customer relationships, technology and tradenames.IFRS requires any intangibles identified separately to be amortised over theiruseful lives. iii. IFRS 3 requires the fair value of inventory acquired to be measureddifferently from UK GAAP. IFRS 3 requires finished goods to be valued atselling prices less costs of disposal and a reasonable profit allowance for theselling effort. Work in progress (WIP) should be valued at selling prices lesscosts to complete, costs of disposal and a reasonable profit allowance for thework yet to be completed. The impact is that profit attributable to stock andWIP at completion of the acquisition is included in the fair value of theacquisition rather than in the post acquisition trading profit. Under UK GAAPacquired finished goods and WIP were carried at the lower of cost and netrealisable value and thus included no profit element. The fair value ofinventory acquired is thus generally higher under IFRS3 than under UK GAAP. This step up in inventory levels is charged to the income statement as theinventory is consumed. Accordingly, for the same items built at the same costand with the same selling prices the post acquisition gross margin reported(under IFRS) when the inventory is sold will be less than that recorded forsimilar inventory built post completion. Impact for Group i. The Group has reversed the goodwill amortisation charged in the UKGAAP accounts for the year ended 31 December 2004. The goodwill balances havebeen tested for impairment and no adjustments to the carrying value have beenrequired. (Note: the impact on profit and net equity are not identical due tothe impact of foreign exchange on the eliminated goodwill amortisation). ii. Intangible assets identified separately from goodwill as part ofthe Dunlop acquisition were customer relationships including order backlog(£137m), patented and unpatented technology (£43m) and trademarks and tradenames(£6m). The related amortisation charge of £3.3m relates to the period fromacquisition (24 August 2004). iii. The impact of IFRS 3 on the fair value of inventory was a step upin inventory of £8.5m which was expensed as the inventory was consumed byDunlop. There is no step up of inventory carried into 2005 and therefore noimpact on profit. There is no impact at 30 June 2004 as there were noacquisitions between 1 January 2004 and 30 June 2004. iv. Intangible valuation exercises for three other small acquisitionscompleted in December 2004 will be finalised in 2005. These valuations are notexpected to have a significant impact on the income statement. Impact £'m June 2004 Dec 2004 Change in inventory fair value recorded as inventory consumed - (8.5)Reversal of goodwill amortisation 9.7 25.0Amortisation of intangibles identified on Dunlop acquisition - (3.3) Impact on PBT 9.7 13.2 Tax - 3.5 Impact on Profit for year 9.7 16.7 Foreign exchange on goodwill amortisation reversal - (1.4) Total impact on retained earnings and net assets 9.7 15.3 e. Income taxes - IAS 12 Requirements of IFRS Under IAS 12 deferred tax is provided on all taxable temporary differences atthe balance sheet date which could give rise to an obligation to pay more orless tax in the future. UK GAAP required deferred tax to be provided on timingdifferences. In general this means deferred tax is more likely to be recognisedunder IFRS than it was under UK GAAP. Impact for Group The impact of adopting IAS 12 on accounting for pensions, business combinationsand share based payments is already explained above. Additionally IAS 12results in differing treatment for the following items: i. Deferred tax liabilities are now required on past revaluations whichprimarily arose when businesses were acquired and properties within thosebusinesses were revalued to fair value. ii. Deferred tax liabilities are required where the earnings ofoverseas subsidiaries are expected to be remitted in the foreseeable future.Under UK GAAP such liabilities were not recognised. iii. Deferred tax assets/liabilities are now recognised where the taxwritten down value of goodwill differs from the value in the accounts. In the short term, the Group's effective tax rate is not significantly affectedby the transition to IFRS. Impact £'m June 2004 Dec 2004 Impact on PBT - - Tax (0.2) 0.7 Impact on Profit for year (0.2) 0.7 Additional deferred tax required at 1 January 2004 1.2 1.2 Total impact on retained earnings and net assets 1.0 1.9 f. Financial instruments (IAS 32 & IAS 39) Requirements of IFRS The requirements of IFRS differ significantly from those of UK GAAP. The mainareas where there will be an impact for the Group are: i. Under UK GAAP where foreign exchange forward contracts were takenout to mitigate foreign exchange risks, operating profit was recorded at theexchange rates achieved. This would be a combination of spot rate for uncoveredtransactions and forward contract rates for covered transactions. Unrealisedgains and losses on open forward contracts were disclosed in the financialstatements. Under IFRS a similar accounting result can only be obtained if extensivedocumentation requirements are met. If a Group decides that it is impracticalto comply with these requirements then operating profits are reported at spotrate irrespective of whether any forward hedging contract exists. Open forwardcontracts will be marked to market at each balance sheet date to determine theirfair value. The fair value of the forward contracts are recognised as assets orliabilities. In the income statement net finance costs will record the net gainor loss on both realised and open forward foreign exchange contracts. ii. Under IFRS a distinction is made in the accounting treatment forcontracts where the contract is denominated in a currency other than the basecurrency of the customer or supplier. In such instances it is necessary totreat the contract as having two separate components: the "host" contract whichis deemed to be the contract assuming the currency had been that of the customeror supplier and the "embedded derivative". The embedded derivative must bemarked to market at each balance sheet date with movements recorded through netfinance costs. No such distinction existed under UK GAAP. Impact for Group IFRS will not impact the way the Group manages its exchange risk and interestrisk exposure and the Group will continue to utilise forward foreign exchangecontracts, interest rate swaps and other financial derivatives as part of thatrisk management strategy. It will, however, change the way we account for suchactivities. The Group does not believe that the costs of complying with theextensive additional hedging documentation requirements (under IFRS) relating tothe Group's large number of foreign currency forward contracts are merited.Accordingly, the Group will discontinue its current policy of hedge accountingfor transaction-related foreign exchange contracts. The Group will, however,continue to hedge account for its interest rate derivatives and foreign currencyinvestment hedges where the frequency of transactions and thus the documentationrequirements are significantly reduced. As referred to above IAS 32 & IAS 39 will only be applied by the Group from 1January 2005. They have therefore no impact on the restatement of the 2004financial information shown in this document. It is not possible at this stageto determine the effects on the balance sheet or the income statement for 2005as they are dependent on a number of unknowns such as future exchange rates. Itis generally believed, however, that complying with IAS 32 & IAS 39 will resultin additional volatility in the income statement. Our intention will be to showthe impact of this volatility, caused by the marking to market of suchcontracts, separately in the income statement. In the Aerospace industry it is common for contracts to be denominated in USdollars. In many instances this will apply even where the two contractingparties own currency is not the dollar. Under IAS 32 & 39 the Group will needto account for these contracts as embedded derivatives. This impact on theincome statement is unlikely to be significant. 4. Detailed reconciliation of profit for the six months to 30 June and the year to 31 December 2004 Consolidated income statement for the six months ended 30 June 2004 Per Proposed Pensions Vacation Goodwill Other UK GAAP dividends accrual amortisation intangibles IAS 10 IAS 19 IAS 19 IFRS 3 IFRS 3 £'000 £'000 £'000 £'000 £'000 £'000Continuing operations Revenue 205,989 0 0 0 0 0 Cost of sales (112,706) 0 0 0 0 0 Gross profit 93,283 0 0 0 0 0 Selling, general and (51,080) 0 913 (508) 9,677 0administrationResearch & development (8,311) 0 0 0 0 0Operating income 154 0 0 0 0 0Net operating costs (59,237) 0 913 (508) 9,677 0 Operating profit - underlying 43,723 0 913 (508) 0 0Exceptional operating costs 0 0 0 0 0 0Amortisation of goodwill (9,677) 0 0 0 9,677 0Amortisation of other IFRS 3 0 0 0 0 0 0intangible itemsIFRS 3 inventory revaluations 0 0 0 0 0 0Operating profit 34,046 0 913 (508) 9,677 0 Net finance costs (4,033) 0 (55) 0 0 0 Profit before taxation - 39,690 0 858 (508) 0 0underlyingExceptional operating costs 0 0 0 0 0 0Amortisation of goodwill (9,677) 0 0 0 9,677 0Amortisation of other IFRS 3 0 0 0 0 0 0intangible itemsIFRS 3 inventory revaluations 0 0 0 0 0 0Profit before tax from 30,013 0 858 (508) 9,677 0continuing operations Tax (11,229) 0 (327) 137 0 0 Profit for the period from 18,784 0 531 (371) 9,677 0continuing operations Discontinued operations: Loss for the period from 0 0 0 0 0 0discontinued operations Profit for the period 18,784 0 531 (371) 9,677 0attributable to equityshareholders 4. Detailed reconciliation of profit for the six months to 30 June and the year to 31 December 2004 Consolidated income statement for the six months ended 30 June 2004 Stock Share based Deferred Other Total Revised Step up payment tax Impact IFRS 3 IFRS 2 IAS 12 IFRS £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Revenue 0 0 0 (393) (393) 205,596 Cost of sales 0 0 0 35 35 (112,671) Gross profit 0 0 0 (358) (358) 92,925 Selling, general and 0 (272) 0 358 10,168 (40,912)administrationResearch & development 0 0 0 0 0 (8,311)Operating income 0 0 0 0 0 154Net operating costs 0 (272) 0 358 10,168 (49,069) Operating profit - 0 (272) 0 0 133 43,856underlyingExceptional operating 0 0 0 0 0 0costsAmortisation of goodwill 0 0 0 0 9,677 0Amortisation of other 0 0 0 0 0 0IFRS 3 intangible itemsIFRS 3 inventory 0 0 0 0 0 0revaluationsOperating profit 0 (272) 0 0 9,810 43,856 Net finance costs 0 0 0 0 (55) (4,088) Profit before taxation - 0 (272) 0 0 78 39,768underlyingExceptional operating 0 0 0 0 0 0costsAmortisation of goodwill 0 0 0 0 9,677 0Amortisation of other 0 0 0 0 0 0IFRS 3 intangible itemsIFRS 3 inventory 0 0 0 0 0 0revaluationsProfit before tax from 0 (272) 0 0 9,755 39,768continuing operations Tax 0 82 (207) 0 (315) (11,544) Profit for the period 0 (190) (207) 0 9,440 28,224from continuingoperations Discontinued operations: Loss for the period from 0 0 0 0 0 0discontinued operations Profit for the period 0 (190) (207) 0 9,440 28,224attributable to equityshareholders 4. Detailed reconciliation of profit for the six months to 30 June and the year to 31 December 2004 Consolidated income statement for the year ended 31 December 2004 Per Proposed Pensions Goodwill Other Stock UK GAAP dividends amortisation intangibles Step up IAS 10 IAS 19 IFRS 3 IFRS 3 IFRS 3 £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Revenue 479,183 0 0 0 0 0 Cost of sales (261,231) 0 0 0 0 (8,492) Gross profit 217,952 0 0 0 0 (8,492) Selling, general and (127,703) 0 1,741 24,981 (3,272) 0administrationResearch & development (23,694) 0 0 0 0 0Operating income 1,205 0 0 0 0 0Net operating costs (150,192) 0 1,741 24,981 (3,272) 0 Operating profit - underlying 100,620 0 1,741 0 0 0Exceptional operating costs (7,879) 0 0 0 0 0Amortisation of goodwill (24,981) 0 0 24,981 0 0Amortisation of other IFRS 3 0 0 0 0 (3,272) 0intangible itemsIFRS 3 inventory revaluations 0 0 0 0 0 (8,492)Operating profit 67,760 0 1,741 24,981 (3,272) (8,492) Net finance costs (11,151) 0 (244) 0 0 0 Profit before taxation - 89,469 0 1,497 0 0 0underlyingExceptional operating costs (7,879) 0 0 0 0 0Amortisation of goodwill (24,981) 0 0 24,981 0 0Amortisation of other IFRS 3 0 0 0 0 (3,272) 0intangible itemsIFRS 3 inventory revaluations 0 0 0 0 0 (8,492)Profit before tax from 56,609 0 1,497 24,981 (3,272) (8,492)continuing operations Tax (22,031) 0 (478) 0 982 2,548 Profit for the year from 34,578 0 1,019 24,981 (2,290) (5,944)continuing operations Discontinued operations: Loss for the year from 0 0 0 0 0 0discontinued operations Profit for the year attributable 34,578 0 1,019 24,981 (2,290) (5,944)to equity shareholders A: Relates to Dunlop acquisition on 24th August 2004. The annualised chargein respect of the acquisition would be £9.8 million B: Impact on acquisition of Dunlop of "stepping up" inventory to fair value.There is no step up of inventory carried into 2005 and therefore no impact onprofit for 2005. 4. Detailed reconciliation of profit for the six months to 30 June and theyear to 31 December 2004 Consolidated income statement for the year ended 31 December 2004 Share based Deferred Vacation Other Total Revised payment tax accrual Impact IFRS 2 IAS 12 IAS 19 IFRS £'000 £'000 £'000 £'000 £'000 £'000 Continuing operations Revenue 0 0 0 (2,610) (2,610) 476,573 Cost of sales 0 0 0 435 (8,057) (269,288) Gross profit 0 0 0 (2,175) (10,667) 207,285 Selling, general and (667) 0 0 2,175 24,958 (102,745)administrationResearch & development 0 0 0 0 0 (23,694)Operating income 0 0 0 0 0 1,205Net operating costs (667) 0 0 2,175 24,958 (125,234) Operating profit - underlying (667) 0 0 0 1,074 101,694Exceptional operating costs 0 0 0 0 0 (7,879)Amortisation of goodwill 0 0 0 0 24,981 0Amortisation of other IFRS 3 0 0 0 0 (3,272) A (3,272)intangible itemsIFRS 3 inventory revaluations 0 0 0 0 (8,492) B (8,492)Operating profit (667) 0 0 0 14,291 82,051 Net finance costs 0 0 0 0 (244) (11,395) Profit before taxation - (667) 0 0 0 830 90,299underlyingExceptional operating costs 0 0 0 0 0 (7,879)Amortisation of goodwill 0 0 0 0 24,981 0Amortisation of other IFRS 3 0 0 0 0 (3,272) A (3,272)intangible itemsIFRS 3 inventory revaluations 0 0 0 0 (8,492) B (8,492)Profit before tax from continuing (667) 0 0 0 14,047 70,656operations Tax 200 663 0 0 3,915 (18,116) Profit for the year from (467) 663 0 0 17,962 52,540continuing operations Discontinued operations: Loss for the year from 0 0 0 0 0 0discontinued operations Profit for the year attributable (467) 663 0 0 17,962 52,540to equity shareholders A: Relates to Dunlop acquisition on 24th August 2004. The annualised chargein respect of the acquisition would be £9.8 million B: Impact on acquisition of Dunlop of "stepping up" inventory to fair value.There is no step up of inventory carried into 2005 and therefore no impact onprofit for 2005. 5. Detailed reconciliation of equity at 1 January, 30 June and 31 December 2004 Consolidated balance sheet as at 1 Jan 2004 Per '04 UK Proposed Pensions Vacation Goodwill Other GAAP dividends accrual amortisation intangibles IAS 10 IAS 19 IAS 19 IFRS 3 IFRS 3 £'000 £'000 £'000 £'000 £'000 £'000 Non current assetsGoodwill 318,877 0 0 0 0 0Development costs 5,262 0 0 0 0 0Other intangible assets 637 0 0 0 0 0Property, plant & equipment 53,312 0 0 0 0 0Deferred tax assets 0 0 22,000 0 0 0Investments 1,075 0 0 0 0 0 379,163 0 22,000 0 0 0 Current assetsInventories 73,539 0 0 0 0 0Trade and other receivables 115,178 0 (3,734) 0 0 0Other financial assets 0 0 0 0 0 0Deferred tax assets 7,121 0 0 0 0 0Cash and cash equivalents 22,670 0 0 0 0 0 218,508 0 (3,734) 0 0 0 Total assets 597,671 0 18,266 0 0 0 Current liabilitiesTrade and other payables 77,173 0 (362) 0 0 0External dividend payable 15,057 (15,057) 0 0 0 0Retirement benefit obligation 0 0 0 0 0 0Finance lease obligations 2 0 0 0 0 0Other financial instruments 0 0 0 0 0 0Tax liabilities 17,130 0 0 0 0 0Bank overdraft, bank loans and 7,789 0 0 0 0 0other loansShort term provisions 0 0 0 0 0 0 117,151 (15,057) (362) 0 0 0 Net current assets 101,357 15,057 (3,372) 0 0 0 Non current liabilitiesBank and other loans 155,402 0 0 0 0 0Retirement benefit obligation 0 0 70,657 0 0 0Finance lease obligations 3 0 0 0 0 0Deferred tax liabilities 4,524 0 0 0 0 0Long term provisions 45,677 0 0 0 0 0Trade and other payables 3,790 0 (2,338) 0 0 0 209,396 0 68,319 0 0 0 Total liabilities 326,547 (15,057) 67,957 0 0 0 Net assets 271,124 15,057 (49,691) 0 0 0 EquityShare capital 14,761 0 0 0 0 0Share premium account 155,475 0 0 0 0 0Revaluation reserve 55 0 0 0 0 0Other reserves 14,064 0 0 0 0 0 Retained earnings - As previously 86,769 0 0 0 0 0reportedRetained earnings - Prior year 0 15,057 (49,691) 0 0 0impact of adopting IFRSRetained earnings 86,769 15,057 (49,691) 0 0 0 271,124 15,057 (49,691) 0 0 0 5. Detailed reconciliation of equity at 1 January, 30 June and 31 December 2004 Consolidated balance sheet as at 1 Jan 2004 Stock Share based Deferred Other Total Revised Step up payment tax Impact IFRS 3 IFRS 2 IAS 12 of IFRS £'000 £'000 £'000 £'000 £'000 £'000 Non current assetsGoodwill 0 0 0 0 0 318,877Development costs 0 0 0 0 0 5,262Other intangible assets 0 0 0 2,215 2,215 2,852Property, plant & equipment 0 0 0 (2,215) (2,215) 51,097Deferred tax assets 0 0 363 7,121 29,484 29,484Investments 0 0 0 0 0 1,075 0 0 363 7,121 29,484 408,647 Current assetsInventories 0 0 0 0 0 73,539Trade and other receivables 0 (202) 0 0 (3,936) 111,242Other financial assets 0 0 0 0 0 0Deferred tax assets 0 0 0 (7,121) (7,121) 0Cash and cash equivalents 0 0 0 0 0 22,670 0 (202) 0 (7,121) (11,057) 207,451 Total assets 0 (202) 363 0 18,427 616,098 Current liabilitiesTrade and other payables 0 0 0 135 (227) 76,946External dividend payable 0 0 0 0 (15,057) 0Retirement benefit obligation 0 0 0 0 0 0Finance lease obligations 0 0 0 0 0 2Other financial instruments 0 0 0 0 0 0Tax liabilities 0 0 0 0 0 17,130Bank overdraft, bank loans and other 0 0 0 0 0 7,789loansShort term provisions 0 0 0 10,556 10,556 10,556 0 0 0 10,691 (4,728) 112,423 Net current assets 0 (202) 0 (17,812) (6,329) 95,028 Non current liabilitiesBank and other loans 0 0 0 0 0 155,402Retirement benefit obligation 0 0 0 0 70,657 70,657Finance lease obligations 0 0 0 0 0 3Deferred tax liabilities 0 (715) (880) 0 (1,595) 2,929Long term provisions 0 0 0 (10,556) (10,556) 35,121Trade and other payables 0 0 0 (135) (2,473) 1,317 0 (715) (880) (10,691) 56,033 265,429 Total liabilities 0 (715) (880) 0 51,305 377,852 Net assets 0 513 1,243 0 (32,878) 238,246 EquityShare capital 0 0 0 0 0 14,761Share premium account 0 0 0 0 0 155,475Revaluation reserve 0 0 0 0 0 55Other reserves 0 0 0 0 0 14,064 Retained earnings - As previously 0 0 0 0 0 86,769reportedRetained earnings - Prior year impact 0 513 1,243 0 (32,878) (32,878)of adopting IFRSRetained earnings 0 513 1,243 0 (32,878) 53,891 0 513 1,243 0 (32,878) 238,246 5. Detailed reconciliation of equity at 1 January, 30 June and 31 December 2004 Consolidated balance sheet as at 30 June 2004 Per '04 UK Proposed Pensions Vacation Goodwill Other GAAP dividends accrual amortisation intangibles IAS 10 IAS 19 IAS 19 IFRS 3 IFRS 3 £'000 £'000 £'000 £'000 £'000 £'000 Non current assetsGoodwill 305,270 0 0 0 9,691 0Development costs 7,446 0 0 0 0 0Other intangible assets 425 0 0 0 0 0Property, plant & equipment 52,546 0 0 0 0 0Deferred tax assets 0 0 21,416 0 0 0Investments 798 0 0 0 0 0 366,485 0 21,416 0 9,691 0 Current assetsInventories 81,126 0 0 0 0 0Trade and other receivables 110,854 0 (3,734) 0 0 0Other financial assets 0 0 0 0 0 0Deferred tax assets 7,121 0 0 0 0 0Cash and cash equivalents 30,792 0 0 0 0 0 229,893 0 (3,734) 0 0 0 Total assets 596,378 0 17,682 0 9,691 0 Current liabilitiesTrade and other payables 77,337 0 (362) 0 0 0External dividend payable 24,462 (9,405) 0 0 0 0Retirement benefit obligation 0 0 0 0 0 0Finance lease obligations 0 0 0 0 0 0Other financial instruments 0 0 0 0 0 0Tax liabilities 19,621 0 0 0 0 0Bank overdraft, bank loans 7,699 0 0 0 0 0and other loansShort term provisions 0 0 0 508 0 0 129,119 (9,405) (362) 508 0 0 Net current assets 100,774 9,405 (3,372) (508) 0 0 Non current liabilitiesBank and other loans 139,818 0 0 0 0 0Retirement benefit obligation 0 0 68,529 0 0 0Finance lease obligations 0 0 0 0 0 0Deferred tax liabilities 6,786 0 0 (137) 0 0Long term provisions 37,029 0 0 0 0 0Related Shares:
MGGT.L